Begin this week BHP stated a recording a $5.67 billion first-half loss due to a massive write down of U.S. energy assets.
BHP -the world’s largest mining company by market value- had to react to the new market reality by slashing its midyear dividend by 74% to 16 cents a share. Furthermore BHP will reduce capital expenditure by $US3.5 billion in the next 18 months, cutting spending to $US7.0 billion in the 2015/16 and to $US5.0 billion by 2016/17.
BHP Chief Executive Andrew Mackenzie said it would offer shareholders at least 50% of underlying profits each fiscal half “to help BHP Billiton manage volatility.” He said the move would safeguard its balance sheet during what it expects will be a “prolonged” period of low commodity prices.
BHP’s low-cost assets, highest credit rating in the sector, and continued free cash flow generation are strengths, but they simply weren’t enough to combat the severe crash in commodity prices over the last year.
The new dividend policy effectively reduces BHP’s dividend yield from 9.8% to an estimated 1.3%. It is BHP’s first dividend cut in 15 years, but is still hurts.
If we look closer what the CEO said, it is clear that BHP’s new dividend policy will result in a minimum payout of $0.04 per share (paid twice per year), and the company’s Board of Directors is also providing an additional $0.12 per share during the current semi-annual period (the Board can continue providing extra dividend payments at its discretion).
Okay the dividend cut was not a surprise. All alarm bells and other signs were flashing the last couple of months. Because BBL takes just 2% of my Vrijheid Fonds, I decided not to act before the new financial numbers.
My Vrijheid Fonds consist of 30 shares of BBL. My total dividend loss for 2016, due to the BHP dividend slash, is approx.€ 50.
In the next few months I will do a new evaluation of BBL for my Vrijheid Fonds.
Do you own BHP of BBL? What is your action after the dividend slash?
I like to hear from you.